Caesars Entertainment's (CZR) Subsidiary Files Bankruptcy - Analyst Blog
Caesars Entertainment Operating Company, Inc. (CEOC), a subsidiary of Caesars Entertainment Corporation (CZR) has voluntarily filed for reorganization under Chapter 11 of the United States Bankruptcy Code.
Caesars Entertainment and its other subsidiaries, Caesars Entertainment Resort Properties and Caesars Growth Partners will not be impacted as they have not filed for bankruptcy. Also, all Caesars Entertainment’s properties, including those owned by CEOC will continue their operations and events and continue to provide the facilities and amenities.
The Restructuring Plan
Per the restructuring plan, CEOC will convert its corporate structure by separating all of its U.S.-based gaming operating assets and real property assets into two companies, an operating entity (OpCo) and a newly formed, publicly traded real estate investment trust (REIT) that will directly or indirectly own a newly formed property company (PropCo). The plan is subject to approval by the Bankruptcy Court and the receipt of regulatory approvals.
The main aim of the restructuring plan that has received support from more than 80% of first-lien noteholders is to significantly curtail long-term debt and annual interest payments. Besides providing significant recoveries to creditors, the plan will ensure uninterrupted operations across the company's network of properties. The proposed transactions would reduce CEOC's debt by approximately $10 billion while annual interest expense would be reduced by approximately 75%.
Caesars Entertainment (formerly known as Harrah’s Entertainment) was taken private in 2008 by private equity firms Apollo Global Management and TPG Capital in a leveraged buyout of around $30 billion. However, it launched an initial public offering in 2012 and begun trading again. Over the last few quarters, this debt-ridden company has been in talks with its creditors to restructure a portion of its long-term debt. It has been working constructively with creditors to deleverage its most indebted unit and is planning a reorganization that would create a sustainable capital structure. Caesars has not been able to post profits for a very long time, failing to recover from its debt load since the recession.
Also, subject to certain adjustments, PropCo would lease its real property assets to OpCo in exchange for annual lease payments of $635 million. The lease payments will be guaranteed by Caesars Entertainment.
The restructuring plan that would help in creating a sustainable capital structure for CEOC will be financially supported by Caesars Entertainment. Notably, the company will not require any external financing given the completion of its merger with Caesars Acquisition Company (CACQ). Caesars Entertainment that currently has a Zacks Rank #4 (Sell) had entered into a definitive agreement to merge with Caesars Acquisition Company in Dec 2014. (Read: Caesars Entertainment to Merge with Caesars Acquisition)
Of late, several companies in the gambling industry have opted for a restructuring of their operations. In Nov 2014, the board of directors of Pinnacle Entertainment Inc. (PNK) approved a plan to separate its operating assets and its real estate assets into two publicly traded companies. Earlier in Nov 2013, Penn National Gaming (PENN) separated its real property assets division into an REIT named Gaming and Leisure Properties through a spin-off.
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